If you like both dividends and bank stocks, then I have good news for you.
According to an analysis by Markit Group, five of the nation's biggest banks are expected to significantly boost their dividends next month after the Federal Reserve completes its annual Comprehensive Capital Analysis and Review.
Bank of America (BAC +1.11%) and Citigroup (C +0.91%) are predicted to lead the way with 400% increases. Morgan Stanley (MS +1.12%) is forecasted to come in third by doubling its quarterly payout. And rounding out the top five are Zions Bancorp and Regions Financial with anticipated hikes of 75% and 67%, respectively.
"Expectations for the remainder are more pedestrian, thanks to Fed guidelines discouraging [payout ratios] greater than 30%," reads the Markit report. "Because payouts across most banks already approach 30%, we have lower projections for banks outside the top five."
| Bank | Estimated Change in Dividend | Forecasted Dividend Increase | Forecasted Dividend Payout Ratio |
|---|---|---|---|
| Bank of America | $0.01 to $0.05 | 400% | 12% |
| Citigroup | $0.01 to $0.05 | 400% | 3% |
| Morgan Stanley | $0.05 to $0.10 | 100% | 14% |
| Zions Bancorp | $0.04 to $0.07 | 75% | 14% |
| Regions Financial | $0.03 to $0.05 | 67% | 19% |
Source: Markit Group
While predictions like these have an unfortunate tendency of being wrong, the Markit report is nevertheless grounds for optimism. If for no other reason, it's indicative of the progress these banks have made since nearly failing during the financial crisis.
Bank of America and Citigroup serve as prescient examples. In the last 12 months alone, Bank of America increased it Basel III Tier 1 common capital ratio from 8.97% to 9.94%. Meanwhile, Citigroup's has gone from 8.6% all the way to 10.5%. Both far exceed the regulatory requirements facing each bank -- Bank of America's Basel III Tier 1 common capital ratio must be 8.5%, while Citigroup's needs to be 9.5%.
On top of this, almost all of these banks have experienced dramatic improvements to their bottom lines. Morgan Stanley's net income went from $68 million in 2012 all the way up to $3 billion in 2013. Earnings at Bank of America nearly tripled over the same time period. And Citigroup's profit almost doubled.
Taken together, in turn, while it's impossible to predict whether these banks actually requested permission to increase their dividends in 2014, there's simply no question that they are in the best position to do so since the financial crisis ravaged their balance sheets five years ago.
